Retaining seller as employee post acquisition?

March 10, 2020

by a searcher from Harvard University - Harvard Business School in Denver, CO, USA

Would appreciate the perspective of this group - looking at a much smaller deal where I could fund the acquisition with no financing (so would remove the SBA requirement of removing the seller as employee post-acquisition). It is a technical business and seller would like to stay on as "lead technician" (e.g. training staff and going on calls as needed). Frankly, I find this a compelling part of this transaction (and I still plan to be very hands-on) but will allow me to more quickly integrate roll-up opportunities to scale. That being said, would be great to hear any experiences (both good and not so good) on this scenario. Thanks in advance all!

Reply by an investor
from Illinois Institute of Technology in Pasadena, CA, USA

I retained one of the three owners on my first deal in a three year employment contract. I kept him on as president. I did not know the industry and felt it was necessary to have an experienced hand at my side. However, after a year, I felt comfortable to assume full responsibility for running the company, yet honored the three year commitment. I tell acquirers today that the transition honeymoon of retaining owners wears off within 12 months.

Reply by a searcher
from INSEAD in Connecticut, USA

I agree that creating an option to ensure a sufficient knowledge and relationship transition upon closing and your ramping up on the business and allowing you to engage the seller as needed as specific questions pop up is important, for example, for a six month or longer consulting arrangement may offer you the benefits you need without committing to retain the seller as a full-time employee, which as noted can create other challenges

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